Vendors who sell goods to troubled businesses are often shocked when they are later sued by the debtor, a creditors’ committee or a trustee for the avoidance and recovery of preferential transfers. For the benefit of the uninitiated, the Bankruptcy Code permits the filing of lawsuits against creditors to avoid and recover payments on trade debt made during the 90-day period prior to the bankruptcy filing. The policy rationale behind this provision is to dissuade aggressive collection activities that often force the debtor into bankruptcy and to promote the equality of distribution among similarly-situated creditors. Preference actions are, by far, the most common form of litigation brought within a bankruptcy case and the amounts sought to be avoided and recovered can range anywhere from a few thousand to millions of dollars. Continue Reading THE BIG PROBLEM WITH SMALL PREFERENCES: The Inconsistent Application of the Small-Dollar Venue Exception Creates Opportunities for Knowledgeable Preference Defendants

In the first installment of this article, we discussed the prevalence of preference litigation and some of the commonly-available defenses to business vendors to limit or even eliminate liability to the bankruptcy estate. While preference actions are by far the most common type of avoidance litigation brought in bankruptcy cases, this is not the end of the story.  Bankruptcy estate representatives can also bring actions to avoid fraudulent transfers and post-petition transactions. We will first discuss the elements of each of these avoidance claims, followed by some tips to avoid being the target of such an action in the first place or, if a defendant, some strategies to limit liability.  Continue Reading Bankruptcy Avoidance Litigation Part II – Do I Really Have to Give That Payment Back?